Economic crisis threatens college students

Low SAT scores are not the only thing keeping students from attending college. While there is no shortage of federal education loans, the economic crises has prevented many families from receiving private loans for tuition.

“This summer I found out that [George Washington University] was going to give me $46, 000 in student loans in grants. I only needed $7,000 more to attend the university and I knew I would have to take that out in a private loan,” said sophomore Ash McDaniel during an National Education Association teleconference on college affordability.

“I was prepared to take out these loans again, and was okay with that. I wasn’t prepared for what happened on Wall Street.”

The rising cost of tuition exacerbates the financial burden facing college bound students. According to Bob Brandon of the Campaign for College Affordability tuition in public institution have gone up 60 percent in the past eight years.

“The average student now is graduating with $21,000 in debt and two years ago the department of education estimated that over 400,000 students a year forgo a 4-year-education simply because of the cost. They cannot afford it.”

Brandon says that this situation can have a negative effect on the U.S. economy.

“A recent report projected that we’ll be 16 million higher education degrees short of the need projected to have a vibrant economy within the next 15 years. We continue to see ourselves fall further and further behind in what is an increasingly competitive in a global market place.”

The mounting cost of student loans have prevented students fortunate enough to attend college from pursuing careers in public service.

“At least a quarter of the students that graduate from four year school have more debt than they can afford to repay on the average teacher’s salary...and 47 percent have more debt than they would be able to repay if they wanted to go into social work,” said Brandon.

Making college affordable has played an important role in the 2008 election. Andrew Myers of Myers Research, who performed a poll on the public views on tuition costs, explained why:

“Every proposal to make college more affordable tested above majority level support...there’s a reason that we hear Barack Obama talking quite often about college affordability in his speeches. It’s part of his stump speech. You hear it in nearly every event he attends. It is because it is part of the economic debate, it is a solid, important part of the economic debate.”

The Economic Crisis: Failed Government Regulation and Racial Scapegoating

“The evidence is overwhelming. This crisis is a direct consequence of years of regulatory failures by government officials” said Senator Christopher Dodd (D-Conn.) Dodd continued, “the dominant players were not Fannie and Freddie, but the Wall Street firms and their other private sector partners; the mortgage brokers and the unregulated lenders”. At the U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing on “The Genesis of the Current Economic Crisis”, the overall consensus of Senators and panel members was that government regulation failures and Wall Street investors were to blame.

Dodd said, “no one can say that the nation’s financial regulators were not aware of the threats posed by reckless sub-prime lending to homeowners, communities, and indeed the entire country. That threat had already been recognized by Congress”. Senator Robert Casey (D-Pa.) said he was troubled by the fact the Treasury Department wants to commit $250 billion to aid banks without “planning to modify a single loan”. Casey suspects that banks are now holding back on modifying loans because they’re waiting to see if they can sell them to the Treasury Department first, which he believes is the worst things that can happen right now.

The Honorable Marc H. Morial, President and CEO of the National Urban League, said that he wanted to, “set the record straight about what I call the Financial Weapon of Mass Deception: the ugly and insidious and concerted effort to blame minority borrowers for the nation’s current economic straits”. Morial blamed a few conservative reporters such as Fox News’ Neil Cavuto and the Washington Post’s Charles Krauthammer for, “telling the world that this crisis in not the result of a failure of regulation, but the fault of minority borrowers who bit off more than they could chew”. Morial said, “while minorities and low-income borrowers received a disproportionate share of sub-prime loans, the vast majority of sub-prime loans went to white and middle and upper income borrowers.”

Conference on Euro discusses economic crisis

A conference on the Euro at the Peterson Institute for International Economics focused mostly on the economic crisis in the U.S. and the world. Lorenzo Bini Smaghi, a member of the Executive Board of the European Central Bank, emphasized that a solution for the entire world market, not just the EU or the US, was needed. When many markets are interconnected, a weak spot in one economy affects all of the economies, he said. He wanted to reassure banks that they will get all of the money they need so that they can start lending, fearing that the credit crunch will hurt the main economy.

Dominique Strauss-Kahn, the Managing Director of the International Monetary Fund, agreed that action is needed to be taken immediately to try to solve the crisis. He pointed out that confidence in the market is necessary to stop the credit freeze. Any action taken, said Strauss-Kahn, should have a clear objective, have oversight on how public money is used, should be comprehensive and coordinated with all actors at every level. He added that the action must also be acceptable for citizens. "We can solve the problem we're facing," said Strauss-Kahn, we just need to act quickly.

Two options for developing economies

According to Czech National Bank Governor Zdenek Tuma, developing economies are faced with two monetary policy options, either fixing their exchange rate to a set currency or adopting an inflation targeting policy, in which a central bank aims to control inflation by adjusting interest rates, an action referred to as "floating."

"Today we can observe much stronger emphasis on floating in most economies...it's accepted that inflation targeting is superior to other regimes."

However, inflation targeting has raised questions, such as whether smaller countries with weaker economies will be able to afford the practice and if it is possible to judge its success when inflation has been low for the past two decades, but Tuma is confident the practice can exceed these concerns.

Tuma discussed the effects of both policies in the Czech Republic. From 1990-1997 the Czech Republic had a fixed exchange rate, and faced skyrocketing inflation rates.

"At that time our predecessors were hesitating between monetary targeting and inflation targeting, and in the end it was inflation targeting and I believe it was the right choice...after ten years we can say that we have managed to introduce very strong credibility of this monetary policy regime and that inflation expectations are pretty well anchored."

Tuma said an additional benefit of inflation targeting was that it can help mitigate the impact of inflationary shock, something that a fixed exchange rate can not do without making abrupt and often times unsuccessful changes.

Still, Tuma said that choosing the right monetary policy is not the sole factor for success in emerging economies and explained that it is not a substitute for sounds governmental policies.

"No country is immune"

In anticipation of the 2008 Annual Boards of Governors Meetings, popularly known as the ‘G-7’, International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn said “the economic crisis we’re in is very serious, but we can solve our problems if we act swiftly and coordinately.” Both the IMF director and World Bank President Robert Zoellick agree that this is a global crisis, and ‘no country is immune’. The leaders claim confidence and cuts in interest rates are the swiftest solutions to the crisis. Confidence is the first tool to be used in response to the economy, and Strauss-Kahn said “if you have the scope for fiscal stimulus, use it.”

The IMF predicts the global economy will have a slow recovery, but will come back starting in the second half of 2009. In order to initiate this growth, the IMF advises action to rejuvenate economic growth. This is why the IMF activated a ‘high access financial program’ yesterday, which will allow the management board to give fast and easily accessible up front payments, while also defining a long-term macroeconomic plan.

The IMF forecasts that the growth rate of developing countries will decline from 6.6% next year to around 4%. They say this is still an acceptable rate of growth, but the deceleration would be so sharp as to feel like a recession. Zoellick said “with the rising economic powers, the G7 countries can work through this crisis by dealing with bad assets, recapitalizing banks, and providing much needed liquidity.” Strauss-Kahn said that, “you can’t say a crisis affects all parts of the world and then develop economic policies that don’t consider the global economy”.